Five things to do before the next crisis

August 4, 2016 | Kim Iskyan

Each economic or financial crisis (kind of like Tolstoy’s unhappy families*) is terrible in its own way. But there are common sense ways to prepare for what might happen – even if, no matter what, you’re caught by surprise.

Sleeping in a padded bunker surrounded by Spam and DVDs of Frank Sinatra movies in anticipation of Armageddon is no way to live. So a few easy things you can do – now – to prepare yourself for the next crisis might be better.

1.Have a stash of (local) cash.

No matter what – unless things turn really ugly – cash will get you what you need if your debit or credit cards don’t work. But if your cash is in a bank that’s gone bust, or if the ATMs stop working, money in the bank won’t do you any good. Keep enough cash in a home safe to get you by for a few weeks – or a few months, preferably. Given negative interest rates in much of the world, you might be better off earning zero interest under your own roof than negative interest with your bank.

Keep some U.S. dollars.

Despite the best efforts of the U.S. Federal Reserve, the U.S. dollar is still the default global currency. Almost anywhere in the developing world (and in much of the rest of it), a US$20 bill can fix a lot of problems very quickly (and a Ben Franklin (US$100) can fix the rest of them). If the local currency is unavailable, or worthless – like in Venezuela today – having greenbacks can be a lifesaver.

2. Diversify where you bank.

We’ve talked about diversification – of your “personal equity” and of your portfolio. Diversifying where you bank is just as important. Keep some money in a “too big to fail” bank – which is safe until it’s allowed to fail. Also keep some money in a conservative local lender where they know you by name. (Remember: Just because your bank is covered by a national banking insurance entity doesn’t mean you’ll get any money when you need it.) Even better, have an account in a different country.

Don’t assume that personal data and records that are online – starting with bank or brokerage statements, for example – will be there when you most need them. Periodically download personal records and store them someplace safe.

4. Follow your stop-loss levels.

If you own shares, you need to have in mind a stop-loss for every stock you own. Just as important, if a stock you hold hits your stop-loss level (the lowest price at which you’re willing to sell to limit your losses if a stock falls), sell. You can’t make money by investing if you don’t have money to invest. A stock that’s down 50 percent has to double before you get back to breakeven. How often have you invested in a stock that’s doubled? Probably not often enough to count on it. It’s much better to have a stop loss level that’s (say) 25 percent below where you bought the stock (and raise the actual stop-loss level as the share price rises) than to be out of the game.

5. Hold gold and/or silver.

I’ve talked a lot about gold and silver… about how they’re good insurance, and are uncorrelated to other assets, and how they’re now a good investment. As we showed here, gold and silver move up when the world is brimming with uncertainty. Gold and silver will rise when the world is on the edge of a cliff.

Even if you don’t know what the next crisis is going to be, you can do your best to be ready for it.

*In his masterpiece Anna Karenina, 19th century Russian author Leo Tolstoy wrote, “All happy families are alike; each unhappy family is unhappy in its own way.” This means that in order to be happy, a family has to be in sync with each other in many ways. But failing to achieve this in any way – and there are lots and lots of ways – results in unhappiness. (The Anna Karenina principle describes something where one thing being wrong dooms the entire effort to failure.)

Kim Iskyan

About Kim Iskyan

Kim Iskyan has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets.

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